Business as Vehicles for Economic Value Creation

It is now commonplace that entrepreneurship is about value creation. Entrepreneurs must set up their businesses with the primary intent of creating values as against just profit motives. The fact remains that true and genuine wealth in business can only come with true value creation. However, while the concept of value creation in businesses cannot be over-emphasised, many articles and nuggets on this subject are geared towards one direction: value creation for the customer.

….many articles and nuggets on this subject are geared towards one direction: value creation for the customer.

The purpose of this article is to create an understanding that value creation by a business is not only for the customers but for all stakeholders along the value chain, which include the customers.

Key Stakeholders To a Business

A business uses resources to provide goods and services for its customers. Thus, this connotes that the business requires various inputs to actualise its mission and vision statements. These inputs include:

Equity as provided by shareholders

Leverage as provided by a bank or other financiers

Skills as provided by employees

Input materials as provided by suppliers

Security & infrastructure as provided by the government

Opportunities as provided by the society

Key stakeholders to a business

All these are the basic inputs that help a business create values. The providers of these inputs are involved in the value creation process and the businesses must be responsible for providing commensurate rewards to them. It is a misnomer for a business to focus on its customers vehemently at the expense of any of these other stakeholders. Recall, if any of these stakeholders is deficient, the value creation process will be distorted.

Consider a business that focusses primarily on creating values for its customers through innovative products and services but which fails to consider value creation to other stakeholders of the business such as employees, suppliers or government. While such business may enjoy a considerable patronage from its customers on the short run, the challenges that will arise as a result of poor employee morale or penalties for tax default will not make the gains of such customer patronage sustainable. Such business will surely witness high staff turnover, regular pressures from tax authorities, difficulties in retaining reliable suppliers etc.

Thus, entrepreneurs should not be myopic when analysing the concept of value creation. Value is not only for the customers. Business leaders must take actions that create commensurate values to all its stakeholders. Only businesses that continually do this can operate beyond just survival level.

Value is not only for the customers.

Values To Key Stakeholders

Having established the above premises, I will like us to identify each stakeholder in the value creation process and how & why businesses must reward them.

Shareholders

The shareholders provide the capital required to start the business. They are an essential stakeholder in the business set-up. Traditionally, businesses exist for the shareholders though some classical theorists have attempted to shift the paradigm by positing that businesses exist for the customers. This is subject to debate anyway.

Thus, if shareholders are the reason why the business came to life in the first place, they deserve corresponding values for their risks and initiatives. The business managers are expected to make wise investment decisions that will generate healthy returns on invested capital for the shareholders. Shareholders expect business managers to take strategic decisions that will maximise their stakes in the business.

Any business that fails to achieve this has failed to add values to its shareholders.

To provide values to shareholders, businesses must:

Make strategic decisions that will ensure higher returns and increase shareholders’ net worth;

Take wise and intelligent decisions that will protect the investments of the shareholders. The need to increase shareholders’ returns is not an excuse to take unreasonable risks;

Ensure transparency and regular reporting of business performances to the shareholders.

Employees

Every achievement a business makes is possible because of the efforts put in place by its employees. Employees must be well motivated, encouraged and rewarded if businesses must continually drive maximum productivity from them. Businesses must not see employees as a tool to maximise gains but as a very critical stakeholder in the value creation process.

Below are some of the ways a business creates value for its employees:

Pay salaries as at when due. Where there is a paucity of cash, employees must be carried along. Paying salaries whenever the business leader pleases is condescending. It is the right of the employees to be paid their salaries and at the right time also.

Reward employees when they perform excellently well or meet set targets. Business leaders, especially SMEs, should endeavour to develop employee manuals which will guide their dealings with their workforce.

Truthfulness and transparency must be exhibited by the business leader at all times. Employees are not just after the money, they want to work in a company where they will be appreciated and trusted, where there will be a commendable degree of predictability and fairness.

Chart a career path for the employees. The business must provide for career advancement or its employees because they also want to grow. Organise periodic training for employees. Promote them where necessary. Enlarge their job functions where necessary.

Create a work-life balance. It should not only be about work. There should be opportunities to bond and unwind in the company. Business leaders should take actions that show that they are concerned about the families of their workforces.

Customers

If the shareholders are the reason why the business came to life in the first instance, the customers are the reason why the business remains alive! What is the whole essence of a business producing goods and services if there is no willingness to pay the customers? Many customer-related clichés such as ‘Customers are Kings’, ‘Customers are always right’; ‘We are here for you (customers)’ suggest that the customers apparently determine the direction of the business. Businesses are compelled to sell products and services that customers want or need, at a price they are willing to pay, otherwise ,customers will look elsewhere.

In this age of unbridled competition, a business must consistently create adequate values to its customers in the following ways:

Utility: Businesses must make products or services that meet the expectations of the consumers. The only way a business can enjoy repeat purchase from its customers is if its products meet the satisfaction of its customers.

To ensure that consumers consistently derive utilities from its products and services, a business must be creative and innovative in its offerings. The Willingness-To-Pay of the consumer can only be heralded if there is maximum satisfaction from the products and services.

Quality: this is a relative term, as it varies with the purchasing power of the customers. But business must strive to offer products and services of the best quality at a given price. Irrespective of the price, no consumer will be happy to buy a fake smartphone. Thus, it is the duty of the business to ensure that all products and services it provides meet regulatory or societal quality standards.

Customer Service: Another important way a business creates values to its customers is via a robust customer service platform. Customer service is the provision of service to customers before, during and after a purchase. Customer service may not necessarily mean having a tangible structure that caters for customers’ complaints.

While an average SME may not have the capacity to keep a dedicated customer service structure, SMEs should be very creative to endear themselves to their customers. Every customer wants to deal with a business that takes him very important. Thus, business managers should focus on actions that will make their clients and customers feel cared for. I will like to share some real life experiences here. Our haulage company once worked with 2 major diesel suppliers. These suppliers delivered a similar quality of diesel and at the same price. However, one of the suppliers controlled about 95% of the diesel supply to the company. The reason was not farfetched. While they supplied the same quality of diesel at the same price, one of the suppliers looked beyond just supplying diesel to the company, and went further to put strategies in place that would help the company prevent stock-out situation on the diesel. It was natural that we would give more business to the supplier who looked beyond just selling diesel. This is a creative way SMEs can use to provide ‘customer service’ to their customers.

Suppliers

These are major stakeholders in the business value chain. Businesses must identify responsible suppliers and build a very formidable relationship with them. A reliable supplier will ensure availability of raw materials at the right price and quality. Opportunity for supplier credit, as well as the provision of market information, are good reasons why businesses must maintain good relationships with their key suppliers.

On the other hand, businesses must reciprocate value to their suppliers to ensure a win-win relationship. This can be achieved in any of the following ways:

Discuss ways to reduce overall costs through size or timing of orders/contracts.

Consider additional products or services that your supplier could provide.

Update them on strategic changes or new products early on – this helps them adapt to meet those changes

Analyse your sales forecast and plans to meet your supply needs. Sharing the results of this analysis with your suppliers will allow you to develop accurate sales plans and hone the sales forecasts and schedules.

Pay bills promptly. Paying late will strain your relationship with the supplier and could lead to less favourable terms in future. Ideally, businesses should have a payment policy that commits them to paying undisputed bills on time. Where a business cannot honour its obligation, prior communication must be made to the supplier.

Be transparent and truthful to suppliers. Always think ‘’Win-Win’’ when dealing with key suppliers. Suppliers prefer businesses which they can rely on.

Provide necessary supports where required. The going concern of a key supplier must be a priority to a business. Thus, businesses must be ready to shift grounds if such moves are so critical to their key suppliers.

Respect Agreements. Businesses with track records of dishonouring agreements with suppliers do not attract good and reliable suppliers in the industry.

Government

The bedrock for the sustenance of any economy is the empowerment of the people. Classical economic theories have proven that economies thrive better where governments assume their positions of providing enabling environments for investors while entrepreneurs create wealth in the economy by leveraging on the policies, infrastructures and security provided by the government. Thus, while the various tiers of government provide the social goods upon which businesses thrive and create wealth, they need to be compensated by the businesses in the form of taxes. Every responsible business must be prompt in tax payment as that is the primary value it provides to the government. The basic tax obligations payable by a business includes PAYE (on behalf of its staff), Withholding Taxes, Value Added Taxes, Company Income Taxes as well as other levies. It is expected that when businesses create value to the government in the form of tax payments, the government are empowered to provide more social good to the benefits of the people, including the business.

I have come across businesses that voluntarily wind up due to the burden of accumulated tax liabilities and penalties. I have seen entrepreneurs who had to set up new companies and lose the track records of their original companies just because they failed to pay taxes as at when due.

Many entrepreneurs are not very informed about the tax laws in their countries and even where they are aware of such laws, the zeal to comply is not always there.

Unfortunately, by the time the tax authorities visit the company for audit, the damage would have been so irreparable that the best alternative is to wind up and start afresh.

Society

Businesses don’t exist in a vacuum. They operate within a society. They rely on the opportunities and challenges provided by the society to create wealth. A responsible business must put the society in mind while taking its short or long term decisions. Social responsibility requires companies to decide voluntarily to contribute to a better society and a cleaner environment. It requires companies to integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.

A business which does not care how its operations affect the security or infrastructure of its immediate community cannot be said to be socially responsible.

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About me

Sola graduated from the Department of Computer Science, Olabisi Onabanjo University in 1999/2000, with a second class upper division and as the third best student in the class. He is an Associate of the Institute of Chartered Accountant of Nigeria (ICAN), passing all his ICAN examinations at first sittings and winning the Princess Adeniran Ogunsanya’s prize in Business Law. He attended the prestigious Lagos Business School for his Executive MBA program between 2008 & 2009 and Stanford University SEED Transformation program for African Entrepreneurs in 2015.
Sola started his professional career in 2002 with NAL Bank Plc and later joined Skye Bank in 2005. His banking career covers various arms of the profession such as eBusiness, Branch and Treasury Operations, Capital Market as well as Information Technology. Sola left Skye Bank in 2008 as a Deputy Manager.
Sola is an astute entrepreneur, having founded and successfully nurtured businesses in the areas of logistics, manufacturing & management consulting. He is endowed with great managerial, business strategy and financial management skills. He is a business mentor, a writer ,and speaker on entrepreneurship.